The 34-year-old – who has been handed the number two shirt – can play in defence or midfield.
He has spent pre-season with the Blues and featured in the friendlies against Havant & Waterlooville, Bognor, Coventry, Woking and Gillingham.
Davies said: “I spoke to a few clubs closer to home, but as soon as I knew Pompey were interested it was an easy decision to make.
“We’ve all been pretty relaxed about the deal being done, but I’m delighted it’s happened in time for the first game.
“I’ve been here for a good few weeks, so I know all about the lads, their style of play and what a big club this is.
“I like to play all over the place – at Derby I was a left-winger, right-winger and right-back, and at Sheffield United last year I played most of it at right-back. If a position comes up and is available I’ll do a good job anywhere.”
Davies came through the ranks at Walsall and later went on to play for Kidderminster, Chester, Shrewsbury, Notts County and Derby.
He moved to Sheffield United – initially on loan – in February 2014 and scored seven goals in 39 appearances during his time with the Blades.
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